Large numbers of students from mainland Europe face being blocked from taking out loans at UK taxpayers’ expense after it emerged that thousands of Bulgarians and Romanians attempted to wrongly claim more than £65 million of public money.

Ministers have pledged “stringent new measures” to prevent students from EU member states claiming financial support in Britain amid fears over widespread abuse of the system.

David Willetts, the Universities Minister, said Europeans must be resident in the UK for five years – rather than three at the moment – to claim loans for living costs under major plans to prevent wrongful claims.

He also pledged tougher action on EU students who return to their home country after graduating without paying back loans.

The move comes after an investigation by the Department for Business, Innovation and Skills found that more than 5,000 students – all from Eastern Europe – who claimed support to study at private colleges in the UK last year had been ineligible for payments.

Some £8 million had already been paid out, but a further £65.2 million of loans were blocked following the crackdown.

Of those payments made, £2.5 million has since been recovered and debt collecting agencies have been instructed to recover the rest.

The Telegraph has learnt that ministers are proposing a sweeping overhaul of support for all EU students to prevent them “playing the system”.

Just weeks ago it emerged that thousands of students, half of which were Eastern European, were receiving up to £11,000 to study at a private college in north London dubbed “the ATM”, with no requirement to actually turn up to lectures.

A study last year found that around 40 per cent of the total number of EU students who are eligible for repayments are failing to do so.

But Mr Willetts said the Government was committed to “ensuring rigorous controls over public spending”.

“False claims for maintenance will not be tolerated and immediate and decisive action has been taken,” he said. “Stringent new measures to prevent abuse have been introduced, around a third – or £2.5 million – of money wrongly claimed has been recovered already and recovery work continues in earnest.”

Student loans to Bulgarians and Romanians were frozen in November last year after a “suspicious” surge in the number enrolling at British colleges.

Under current rules, the Student Loans Company offers two loans – one to cover tuition fees and another for living costs. EU students must be resident in the UK for at least three years to claim maintenance support.

In total, 11,191 students subsequently had their loans suspended. New figures show 5,342 claimants were found to be ineligible. Of those, 1,333 had already received payments totalling £8 million.

In a letter to the Commons business select committee, Mr Willetts said: “If we find evidence of fraud, we may prosecute those involved. If any higher education provider is found to have been complicit in this, we will take the action against them directly.” Mr Willetts also said the Government would consult on measures to clamp down on the abuse in the future.

This includes ensuring EU students who are resident in this country for five years – instead of three at the moment – before being allowed to claim loans for maintenance.

He also outlined plans for “more stringent residency evidence checks” and a new agreement with other EU governments “to assist us in tracking down any of these students that have returned to their home countries without paying their outstanding debt”.

Mr Willetts said the five-year residency plan was in line with similar measures in other EU countries, insisting it would “ensure that scarce public funds go only to those who have a genuine attachment to the UK”.

He also outlined plans to reassess payments made to thousand of other students attending mainstream state-funded universities.